China central bank urges joint regulatory efforts to curb financial risks

People's Bank of China Deputy Governor Hu Xiaolian speaks in Hong Kong

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The People's Bank of China (PBoC) Deputy Governor Hu Xiaolian speaks during a signing ceremony of a supplementary memorandum of cooperation on renminbi (yuan) business with the Hong Kong Monetary Authority in Hong Kong July 19, 2010. REUTERS/Bobby Yip

BEIJING (Reuters) - Chinese regulators must strengthen policy coordination to ward off potential financial risks, some of which stem from overcapacity and debt problems in some sectors, Hu Xiaolian, a vice central bank governor, said on Thursday.

Hu's remarks followed the recent establishment of a new supervisory mechanism under which the central bank plays a leading role in coordinating policies and financial regulations.

"Overcapacity and excessively high debt levels in some sectors will create hidden dangers for potential financial risks," she told a financial forum in Beijing.

"We need to strengthen policy coordination, strengthen systemic (risk) monitoring and macro-prudential regulatory requirements, only in this way we can firmly safeguard the bottom line in preventing systemic and regional financial risks."

Concerted efforts are needed to rein in risks in China's banking sector, including credit and money markets, as well as capital and insurance markets, she added.

China's changed economic landscape - slower economic growth, market-based reforms of interest rates and currency regimes, an increased financial innovation - all reinforced the case for joint supervision, she said.

The country's current main financial supervisors include the PBOC, the China Banking Regulatory Commission (CBRC), China Securities Regulatory Commission (CSRC), China Insurance Regulatory Commission (CIRC) and the State Administration of Foreign Exchange (SAFE).

Hu conceded that the current system has some flaws, such as overlapping regulations, or conflicting standards.

Last month, the cabinet approved the establishment of a joint meeting mechanism, under which the central bank and other regulators hold regular meetings on policies and regulations.

China's local government debt is among the biggest threats to its economy as the credit mostly funded the building of public infrastructure, which yield low financial returns. Poor government disclosure on debt levels have further aggravated concerns about the true size of China's bad debt risks.

Separately, Jiang Yang, a vice chairman of the CSRC, pledged to speed up preparatory work for launching crude oil futures.

Chinese banks have been allowed to experiment with credit securitisation to help support the slowing economy.

(Reporting by China Economics Team; Editing by Kim Coghill)


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